The potential impact of the Sandler consultation paper could turn the
financial services industry on its head. What are the origins of Sandler's
take on the market's possible shortcomings?
Obvious candidates include Gartmore chief executive and the trailblazer
for Sandler, Paul Myners, assisted by Treasury officials. But other
influential figures include life office analyst Ned Cazalet and possibly
former Autif director general Philip Warland.
One source told Money Marketing they believed that the individual who
wrote key parts of the Myners report was the same Treasury official who
helped pen the Sandler review. Clearly, it was the Treasury which first
commissioned Myners and defined the inquiry's terms of reference. The
ongoing Treasury influence will be felt as it and FSA wrestle with the
challenges brought by their simultaneous reviews of with-profits and
Turn to the back of the Sandler review for any references to the research
material or methodology which shaped the review and you will be
disappointed. There are no references to any sources or specific research,
only references to Myners' original work.
One former civil servant told MM the likely make-up of the team behind
Sandler would be high-level economists plus a secretariat. What grounding
in financial services any of the team have is unclear.
What is known of the methodology which gave rise to the scope of the
present review carried out by Sandler?
Ned Cazalet worked on the Myners review, helping the Treasury with
technical and market knowledge which helped shape the scope of Sandler.
He says: “I was retained by the Treasury scoping out what became the
review and edited a couple of chapters of the Myners report on life
insurance. It is fair to say that I was instrumental in helping the
Treasury structure what the review should look at and work out.”
Certainly, a number of Cazalet's concerns are echoed in the Sandler
document. He argues that IFAs' investment knowledge is critically low. He
goes so far as to argue that IFAs can only legitimately give investment
advice if they share the same skills and market knowledge as fund managers.
Cazalet says: “FPC3 is an exam with no investment element. How do you
choose between fund manager A and fund manager B if you have not been a
fund manager? Many IFAs do not know the basics of risk versus reward in
terms of whether clients will receive the pay-off relative to risk.”
His take on the role of past performance also finds its way into Sandler
consultation paper. He maintains that past performance has no relevance and
no place in investment advice.
One source close to the review suggests that former Autif director general
Philip Warland made his influence felt on the scope of the review. Recallingcomments made last year, there is some evidence to suggest common ground with Sa
In September last year, Warland announced: “I was astonished to see the
comments of my opposite number at the ABI, when Mary Francis apparently
said to the economic secretary that the Government should stop interfering
in product manufacture and let the industry get on with it. If her industry
had a 10-year pristine record, then she might have a point.”
He went on to say he believed the Government should only interfere where
it is strictly necessary and that there were few clearer cases than the
area of pensions which needed Government intervention.
Whether Sandler has hee-ded these comments as part of a mandate for reform
is unclear but what is clear is that the mounting attack on with-profits
has been driven by the unit trust industry in the shape of Myners.
But any efforts by the unit trust industry might be seen to have backfired
as all product providers are required to justify their marketing of
products and commission and, in particular, how investment products'
objectives are set and benchmarked.
Whatever the empirical merits of Sandler review, the financial services
industry is likely to have to be more fact-driven and scientific in its
defence of existing practices in its consultation submissions.